In the June 16, 2011 Federal Register, the Bureau of Industry and Security (BIS) created License Exception Strategic Trade Authorization (STA) in the Export Administration Regulations (EAR).  At the heart of STA is the determination that requirements for export/reexport licenses issued by BIS are not the best way to serve the interests of US export control policy.  The US Government apparently has determined that for the many of exports of many of the controlled items on the Commerce Control List (CCL), creating a License Exception STA information/paper trail between senders and recipients of controlled items serves US export control policy more effectively than requiring export or reexport licenses for those transactions.

This is a self-policing, honor system for compliance—don’t ask for export/reexport licenses, just tell the recipient how the items are controlled and get the recipient to agree not to violate the EAR.

OK, let’s take a look at this new STA in section 740.20 of the EAR.

Activities Covered by STA

STA applies to exports, reexports, and in-country transfers of eligible items to eligible countries.  It also applies to deemed exports of eligible technology and source code to foreign nationals of eligible countries.

STA Eligible Countries

STA has two groups of countries.  To avoid confusion with the EAR Country Groups defined in Supplement No. 1 Part 740, I will refer to these as “country clubs” not “country groups.”   More items are STA-eligible for the first country club than for the second.

The members of STA Country Club 1 are listed in EAR 740.20(c)(1) and include destinations in or nationals of Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, or the United Kingdom.

The members of STA Country Club 2 are listed in EAR 740.20(c)(2) and include destinations in or nationals of Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa, or Taiwan.

STA Eligible Items

First, paragraphs 740.20(2) points out limits on STA.  First it reminds us that STA may not be used for transactions prohibited by the end-use controls (e.g., missile, nuclear, CBW) in EAR Part 744 or when the Part 746 Embargoes and Other Special Controls apply.

Then, paragraph 740.20(b)(2) gives us a list of a wide range of ECCNs and paragraphs within ECCNs that are not eligible for STA.  If your item is listed there, then stop and don’t use STA.  If your item is not listed there, go ahead and look at eligibility list for each of the two STA country clubs.  Each STA country club has its own respective set of eligible items.

For STA Country Club 1, paragraph 740.20(c)(1) says the items have to be controlled for one or more of these reasons, but not for any other reasons:

·    national security (NS);
·    chemical or biological weapons (CB);
·    nuclear nonproliferation (NP);
·    regional stability (RS);
·    crime control (CC), or
·    significant items (SI).

For STA Country Club 2, paragraph 740.20(c)(2) says eligible items are those that are both:

1) Controlled only for national security (NS) reasons; and

2) Not described in an STA paragraph in the ECCN for the item.  The STA paragraphs in ECCNs tell you which items are not STA eligible for Country Club 2.

Now, before you ask, let me tell you this:  All of the STA eligible ECCNs are controlled for anti-terrorism (AT) reasons.  AT controls do not limit STA eligibility.  BIS wrote STA in a way that can be a bit confusing on this point.  For the purpose of STA, either 1) ignore AT controls, or 2) remember that AT controls do not apply to any STA eligible countries so there really are not AT reasons of control.

STA Information/Paper Trail

License Exception STA replaces certain requirements for BIS approved export/reexport licenses with an information/paper trail.  This paper trail must be established for every export, reexport and transfer under STA.  These requirements are in paragraph 740.20(d).
Note: There is a special information/paper trail for deemed exports and reexports and it will be discussed below.

The three elements of the paper trail are:

Step 1):  The sending party (exporter, reexporter, or transferor within a country) gives the recipient the ECCN for each item being sent under STA.

·    The sender only has to give the ECCN information for each item once, as long as that information remains accurate.  So, if I tell you today that model 323 is ECCN 5A001 today, I don’t have to tell you on subsequent shipments.

·    Good news for recipients of my STA exports:  The EAR says you can reply upon the ECCN classification I give you unless you know it is wrong.  So, my French customer does not have to waste time verifying the ECCNs I give as long as the pass the laugh test.

Step 2):  Prior to sending items under STA, the sender gets an STA “Consignee Statement” from the recipient.

·    The sender gets the “Consignee Statement” once and may use it to make multiple shipments/transfers as long as it continues to accurately describe the parties, items and ECCNs.

·    The sender keeps a log of all STA shipments/transfers with a reference to the specific “Consignee Statement” used for each shipment/transfer.

·    The EAR gives you the wording of “Consignee Statement” :

[INSERT NAME OF CONSIGNEE]:

(i) Is aware that [INSERT DESCRIPTION AND APPLICABLE ECCNS OF ITEMS TO BE SHIPPED] will be shipped pursuant to License Exception Strategic Trade Authorization (STA) in § 740.20 of the United States Export Administration Regulations (15 CFR 740.20);

(ii) Has been informed of the ECCNs noted above by [INSERT NAME OF EXPORTER, REEXPORTER OR TRANSFEROR];

(iii) Understands that items shipped pursuant to License Exception STA may not subsequently be reexported pursuant to paragraphs (a) or (b) of License Exception APR (15 CFR 740.16(a) or (b));

(iv) Agrees not to export, reexport or transfer these items to any destination, use or user prohibited by the United States Export Administration Regulations; and

(v) Agrees to provide copies of this document and all other export, reexport or transfer records (i.e., the documents described in 15 CFR part 762) relevant to the items referenced in this statement to the U.S. Government as set forth in 15 CFR 762.7.

Step 3):  The sender notifies the recipient of STA shipment/transfer.

·    With every shipment/transfer the sender gives a written STA notice in paper or electronic form.

·    The notice must identify which items in the shipment are moving under STA.

Special STA Information/Paper Trail for Deemed Exports/Reexports

STA authorizes deemed exports and reexports of eligible technology and source code.  Paragraph 740.20(d)(4) describes the information/paper trial requirement for deemed exports and reexports:

·    The party releasing the technology or source code must give the  recipient a written notice of the restrictions on further release of the technology or source code.

·    The written notice must either inform the recipient that the EAR impose limits on further disclosure or must be in the form of an agreement in which the recipient agrees to limits on further disclosure consistent with EAR requirements.

·    The releasing party and the recipient must keep a copy of the written notice.

·    The notification may be in a separate document or included in a document such as a contract or a nondisclosure agreement.  If the document has an expiration date, it must provide that the restrictions on disclosure do not expire.

Don’t Forget the Dreaded Wassenaar Reporting Requirement

Yep, that’s right.  A significant number of STA exports may require Wassenaar reporting as required by Part 743 of the EAR.  (Interesting note:  Part 743 is the only odd numbered part in the EAR.)

Fortunately, the EAR does not require Wassenaar reporting for reexports or in-country transfers.  (The government of the reexporting country may require Wassenaar reporting for the transaction if the government participates in the Wassenaar Arrangement).

So What Is the Final Analysis of STA?

Now, your job, if you choose to accept it, is to determine the extent to which STA is useful to your company.  I highly recommend you read EAR section 740.20 to understand STA after you read this article.  If you have some extra time, read the Federal Register notice to see the background and explanation of why BIS created STA the way it did and what it hopes to accomplish.

First, it may be that STA does not help you.  Maybe, your items were already NLR eligible or eligible for a different license exception for countries in the STA country clubs.  If your items are eligible for License Exception GBS, it probably is easier for you to continue to use GBS than to start using STA.   Or, maybe your  items are excluded from STA eligibility—for example, they are controlled for MT reasons.

Second, if you determine STA may be useful, then you have to put in place compliance procedures for STA.  This means, among other things, procedures for

·    Updating your classification matrix to show STA eligibility,
·    Sending ECCN information to recipients,
·    Obtaining STA Consignee Statement,
·    Keeping logs of STA shipments/transfers, matching each activity with a Consignee Statement,
·    Sending STA shipment/transfer notifications.
·    Wassenaar reporting,
·    Keeping records of all of the documents and activities under STA.

Good luck.

For the Federal Register notice go to: http://www.access.gpo.gov/bis/fedreg/pdf/76fr35276.pdf

A company needs three levels of training

1)      Expert training: The core export compliance experts need to be experts on the rules

2)      Awareness training:  A wide range of company personnel need to trained to know what issues export rules create and how to handle them or whom to ask for help

3)      Executive training:  Top level management needs to understand the risks of violation and how export rules impact the company’s business activities so management can decide how much money and resources to spend on compliance.

This article will focus on expert training.  I will write articles later to discuss the other training.

A starting point for any company export compliance program is for the company to figure out what the rules are and how they apply they apply to the company’s products, technologies and activities.  This usually means that the company, depending on its size and export issues, appoints one or two, or maybe a few people to be the export compliance experts.  While someone new to export compliance theoretically could learn the rules by reading the rules, it is usually much better for the newbie to be taught what the rules say and how they work before digging into the voluminous, arcane, and complicated regulations.  There are various export control regulations—the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Foreign Trade Regulations (FTR), plus the various Office of Foreign Assets Control (OFAC) regulations—and the company needs to know if and how each of these regulations impacts the company.

And, unfortunately, a quick glance is not enough and common sense won’t help—who would think the ITAR regulates exports of items involved in sending TV signals for the Sunday football game to your house?  You need to learn what the rules actually say.  Beware of company folk lore—“we’ve always done it this way,” or “if we sell to the military its ITAR, but if we sell to somebody else it is not ITAR,” or “the ITAR does not let you put technical data in the ‘public domain.’”  You need to focus on learning the rules themselves.

Beware of oral information that contradicts the rules—whether from a government or other source.  Sure, maybe today the government interprets the word “green” to include “yellow” because yellow is a precursor to green.  But if the rules do not say that, and you act as if green does not include yellow, you have put yourself in a defendable position, to say the least.  Most of us do not talk to every government official in Washington so that we know the interpretation of the day — and we don’t know if 99% or only 0.01% of the government interprets green to include yellow.  Learn how to read the rules — then do what they say!

Once you start on the long path to becoming an expert on the rules, you have to figure out what procedures you will implement to help your company follow the rules.  Technically, in most cases, implementing procedures is optional because it is not a violation to fail to have compliance procedures.  It certainly is prudent, however, to implement compliance procedures if you want to do a good job on compliance.

Going to a live seminar is the best form of training.  There is nothing better than being able to interrupt a knowledgeable speaker and ask a question when it pops into your head.  A key part of live training may be the 5 minutes you spend at a break talking to the instructor about a specific issue.  Electronic or online training is better than nothing if your company is not willing to pay for live training, or if live training is otherwise not an option.

In any event, you need to make sure the people giving the training are experts on the rules.  They need to be able to give practical advice on the many different approaches you can take in implementing company procedures to follow the rules.  Verify the expertise of the trainers.  A person’s title or pay grade is not a key factor, nor is whether the person works in or outside of the government.  The best thing to do is talk to industry experts who actually have received training from the person giving the training you are considering.

Your goal should be to become an expert on the rules, or perhaps an expert on the rules that specifically impact your company.  This is a difficult task but you can do it.  (If I can do it, anybody can, trust me.)  To be an expert, you need regular and repeated training.  The first training you get to introduce you to the topic may be overwhelming, so just try to pick the most important issues—for example, take away the fact that you need to do export jurisdiction determinations and classifications for all of your hardware, technical data and software, but don’t worry if you didn’t memorize the second exception to the first prohibition in the antiboycott regulations.

Go to each training after the first with two objectives.  First, to hear people validate that what you think is true is true.  These export rules are often illogical and hard to believe so you might start doubting your understanding.  You will get value from just listening to somebody say that a convoluted rule means what you think it means.  You second objective is to learn more.  Eventually you need to understand the second exception to the first prohibition in the antiboycott regulations.  I know people who are experts and continue to attend the same seminar 5 – 10 times because they always get something new out of it.

If you are an export compliance professional, you need to embrace this reality:  The more you learn about the export compliance rules, the more difficult it becomes to comply with the rules.  Think about it:  A novice thinks export controls just mean taking care of exports of products.  As that person learns more he realizes that export compliance applies to hundreds of emails leaving his facility daily, and then that his employees with work visas present export compliance issues.  More and more training will not make your life easier, but will likely just add more things to your list of things do to as you learn about a rule you did not know about, or as you notice a different aspect of a rule.

As you can see, training is not a onetime event.  You should be training at least once a year, and I recommend twice a year in most cases.  I already discussed how the complexity of the rules calls for repeated training.  These rules also change.  The government procedures often change (hmm, the ITAR Agreement Guidelines come to mind!).  You need to stay up to date with changes and continue to grow and build your expertise.

Having well trained export compliance experts is good for your company.  Being a well-trained export compliance expert is good for you.  As your expertise grows, so does your confidence in your knowledge, and that puts you in a better position to tell your engineer “yes, it is true that we have to treat the employee with a work visa as an export issue.”  You will encounter people who want to comply with what the rules ought to say or what they would like for them to say.  You argue against those people by showing them what the rules say.  Your expertise will enable you to point to the rules as the basis for the positions you take so you can say “maybe it does not make sense, but this is what it says.”

And, of course, being well trained on export compliance is a valuable addition to your resume!

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John Black has been in the field of export controls since 1984, is a consultant with BSG Consulting and a regular speaker for The Export Compliance Training Institute (ECTI).  ECTI offers live seminars for US Companies and companies located overseas.  The current schedule of their seminars can be found at http://learnexportcompliance.com/schedule

More information available at: http://edocket.access.gpo.gov/2010/2010-32563.htm

Bruce says: “Although it may seem unusual that a male will be President of WIT-LA, it emphasized the point that the organization represents all the people involved in export-import trade and regulations. I look forward to working with a very talented board of directors of both genders and many different backgrounds, to create valuable programs that serve the trade community.”

Website: http://www.wit-la.org/index.asp

BIS has also revised the validated end-user authorization for Advanced Micro Devices China, Inc. by updating the list of the company’s approved buildings and the descriptions of items that are eligible for export, reexport, or in-country transfer to AMD.

Shipping after a license is denied is willful and knowing and intentional and criminal, and, by the way, stupid.  Not only did they know a license was required, they knew the USG would deny the license.  People could have gone to jail and companies could have been added to the denial list.   Not a mistake or accident here but intentionally violating the regulations.  Add that to nuclear facility, entity list, China and Pakistan, and you have a big ole stew of aggravating factors

Perhaps I should apologize for saying the violation was stupid.  My mother always says it is rude to say “stupid.”  OK, the violation demonstrates a lack of sound judgment and thought and illustrated behavior based greed.  I just assumed that everybody knows that if BIS denies your license application, there is a good chance BIS will watch your company closely because BIS suspects your company will ship anyway.  You know why BIS does that?  Because idiotic (my mother doesn’t read this stuff) companies ship anyway when their license is denied.

I have seen some people say this case is a new issue because it shows that if you export to somebody related to somebody on the list, you get in big trouble.  That is not what this case proves.  But it sure makes good hype for lawyers and consultants trying to scare up some work by saying it is not enough to screen the parties actually involved in the transaction because you have to find out all of the parties possibility related to the parties in the transaction and screen them too.

But, honestly, this case should scare only companies who decide to export after they get their license denied—and that is nothing new.  Ikaw buang!

This new license exception, STA (strategic trade authorization) is yet another child of the President’s Export Control Reform Initiative. As with any export control reforms/proposals there is not likely to be decision made any time in the near future.

Comments with regard to license exception STA must be received by BIS by February 7, 2011, for information on how to submit your comments visit: http://edocket.access.gpo.gov/2010/2010-309689.htm (Federal Register)

The free conferences are limited to 100 people per session; to participate you must dial in at 866-917-2713; participant code: 4136642. You may also submit questions in advance of the training to be answered during the teleconference, submit your questions to oesdseminar@bis.doc.gov

Information available at: http://www.bis.doc.gov/news/2010/teleconference_opportunity_wolf.htm

This new certification was created to put a dent in the number of violations of the “Deemed Export” rule. Employers have always been liable for export control violations. This new certification exposes the rule even more by forcing the applicant company to go on record. Deemed Exports can occur in a number of ways, anything from a foreign national employee accessing restricted technology through a company intranet to observing the technology while working in a manufacturing plant…the possibilities are endless.

This new visa application requirement reminds employers that they have to pay close attention to their controlled technology and be prepared to show why certain technologies are or are not subject to export controls in the event of an audit. Employers will now need to classify their own technology and technical data and also those generated by third parties. This means that employers may have to obtain export classification information from third parties or guidance from the government ruling…a very time consuming task.

Information available at: http://global-immigration-news.totallyexpat.com/united-states-new-form-i-129-will-require-certification/